Bank of America (NYSE:BAC) saw its shares jump by more than 5% over trading on Tuesday to close at $9.03 as growing investor optimism toward bank shares in general was helped by a positive outlook for the bank’s lending business by its CFO Bruce Thompson.  The bank’s shares have languished below the $9-mark since last August except for a brief period this March. It is only in recent months that the bank’s shares have been upbeat, inching closer to our $9.70 price estimate for Bank of America’s stock.
Bank of America has been coping with huge losses linked to its mortgage portfolio in recent years – a problem accentuated by the increased liabilities on its books from the acquisitions of Countrywide Financial and Merrill Lynch at the peak of the 2008 economic crisis. It has been actively selling off non-core assets while streamlining its operations as part of its two-phase Project New BAC. In fact, the bank lost its position as the biggest U.S. bank in terms of assets to JPMorgan Chase (NYSE:JPM) last year as a result of the various divestitures it undertook.
At an investor conference, Thompson mentioned that the troubled U.S. lender is almost done with all major divestitures and is now going to focus on growing its loan book. Bank of America’s total outstanding loans figure has been on a steady decline quarter after quarter with the bank writing-off more consumer loans than it was creating in a period. This is in contrast with competitors like Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB) who have shown a decent growth in loan base over the same period. Thompson’s strategy of focusing on small- and mid-sized firms also resonated with investors, considering the 4% growth seen in Bank of America’s commercial loans this year.
Expectations were also running high on Tuesday as investors pinned hopes on Germany clearing the European Stability Mechanism (ESM) – an important step toward the ECB flagging off its debt buyback plan. With the German constitutional court announcing its approval of the ESM early on Wednesday, the ECB is now one-step closer toward its bailout plan for Italy and Spain.Notes: